Marketers Need To Reset Their Pricing Expectations

“Data-Driven Thinking” is written by members of the media community and contains fresh ideas on the digital revolution in media.

Today’s column is written by Jay Friedman, chief operating officer at Goodway Group.

We’ve seen clearing prices for display inventory rise more than 100% in the last two years, and video inventory grow more than 50%.

While there are some very clear reasons driving these gains, the most important outcome we need to achieve on the buy side is for marketers to reset their pricing expectations for quality inventory.

In markets where severe technological disruption and innovation occurs there is often a period of product undervaluation followed by a period of price normalization. If you’re old enough to have bought music CDs, you remember paying $15 for a pre-bundled collection of songs distributed by one of a handful of companies that controlled the entire market. This was similar to pre-ad-network digital media buying.

Then came Napster. Any song, hand-picked – free! While not free, the ad network era and first 10 years of RTB were a period of severe undervaluation.

Now the music market has normalized with the ability to buy single songs or a vast music library via subscription service. This is similar to how most ad buyers now hand-pick inventory using smart data and cross-device targeting and measurement, but they pay more fairly for it.

It’s been my sense that larger marketers and agencies that are diving deep into their data every day have seen this gradual rise in inventory pricing and understand many of the forces behind it. Regional agencies and marketers, though, are finding this alarming. But many market forces are driving the change in the value of digital inventory.

Fraud Detection

Fraud levels haven’t improved, but our ability to detect fraud has. This has created a great divide in the market where suspicious traffic values have fallen and quality traffic values have risen.

The first driver here is simply being willing to pay more for something that is known to not be suspicious. The second is that the pool of quality inventory shrunk quickly, with the same demand chasing that smaller pool. It’s supply and demand 101.

Viewability Detection

Sixty percent of my ads aren’t viewable? While measuring viewability is imperfect, clearly the measurements are directionally important. Combining private marketplace inventory with viewability took an already-smaller inventory pool and shrunk it severely while not eliminating demand.

Header Bidding

Publisher-managed waterfalls were complicated and time-consuming. Even when done right, they were done with limited information around what buyers were willing to pay. When 100% of inventory was opened up beyond Google’s DoubleClick for Publishers (DFP) and DoubleClick Ad Exchange, buyers were finally able to assess the true value of a much greater segment of inventory. Buyers quickly discovered how to sort the desirable from the undesirable inventory, which varies by marketer, and value it appropriately.

Shenanigans

If you bid $5 on an impression with a floor price of $4.25, what do you pay? Well, that depends on the supply-side platform (SSP), and the scenarios aren’t all clear to buyers.

Some SSPs may favor certain buyers with price or bid order. If one company owns the publisher ad server, SSP and demand-side platform, it’s not a stretch to see how favoritism could occur within that chain.

I’m not just referring to Google – this scenario plays out globally with other companies as well. Other SSPs will pass the bid a few pennies over $4.25 “just to make sure” it clears. Others may see the 75-cent spread as an opportunity to take a portion as margin. Sadly, there is no governance, and enforcing ethics is challenging due to the multiple parties involved.

Since DFP is the heart of this, a truly open and unbiased DFP would solve this. So, is Google's exchange bidding in dynamic allocation (EBDA) product the answer? When few publishers will publicly support the product, I wouldn’t count on EBDA in its current state to be a lasting solution.

Marketers who spent years in traditional media and are now adjusting to digital will find it challenging to make the mental shift away from trying to negotiate the very lowest price for all media in all cases to thinking about media in a “you really do get what you pay for” way.

Marketers and agencies who see negotiating vendors down as a badge of honor and a responsibility to their clients are only doing their clients a disservice by not affording them the ability to compete for the inventory that will generate the best return on ad spend.